MUMBAI: On Friday, the government auditor expressed doubts if India’s 21 public-sector banks can raise Rs 1 lakh crore from the market in two years. Given the backdrop that public-sector banks raised a pitiful Rs 7,726 crore from the market, CAG’s doubts strengthen the view that the Basel-III deadline could be missed.
In fact, the finance ministry last month reportedly sounded off the Reserve Bank of India if the deadline could be extended. While large banks have the muscle to meet the capital adequacy norms, there are a large number of mid- and small-size banks, which may find it difficult to raise the required capital. But, such a relaxation isn’t favoured by all.
Former RBI Governor Y V Reddy recently told Express that seeking an extension was like changing the thermometer, just because a patient has fever.
According to Basel-III, state-run banks should amass Rs 1.8 lakh crore by 2019. Of this, Rs 70,000 crore includes government infusion, while the remaining Rs 1.1 lakh crore needs to be raised from the market.
As per the CAG report tabled in Parliament, as of March 2017, the Department of Financial Services (DFS) informed the CAG in June 2017 that the market scenario was ‘quite upbeat’ especially the banking stocks. It added that stronger and bigger PSBs were nearing their 52-week high in stock markets and were at their highest levels in the last few years.
While the Bankex had gone down, the bigger few PSBs were doing well and their share prices were nearing a 52-week high. “DFS also replied that bigger banks, which would need nearly 60-70 per cent of the capital requirement, would be in a position to raise equity from the markets in next two years,” the report said.
Moreover, there was a significant gap between book value and market value of PSB shares, with most PSBs having a lower market value, which may come in their way approaching the market for additional capital funds.
The government as the majority shareholder, has infused a capital of Rs 1,18,724 crore from 2008-09 to 2016-17 in the PSBs for meeting their capital adequacy requirements based on their performance.